SPAIN and Portugal are set to be slapped with sanctions by European finance ministers after failing to get a grip on their budget deficits.

The two debt-laden countries have not taken effective action to bring their deficits below three per cent in line European Union (EU) rules, the European Council's economic and finance group said today.

The trouble states now have 10 days to appeal against automatic penalties that amount to around 0.2 per cent of GDP.

Peter Kažimír, minister for finance of Slovakia and president of the Council today said: "I am sure that we will have a smart, intelligent result at the end.”

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Spain also had its deadline for addressing the deficit deadline extended by two years from 2012 to 2014 - and then another two years until 2016 - as the economy continued to struggle under high unemployment and low growth.

It had been given deficit targets of 6.5 per cent of GDP for 2013, 5.8 per cent for 2014, 4.2 per cent of GDP for 2015 and 2.8 per cent of GDP for 2016.

But the deficit amounted to 5.9 per cent of GDP in 2014 and 5.1 per cent of GDP in 2015.

The Council today concluded that Spain is not set to correct its deficit in 2016 as required.